Readers' comments

I agree. If the tax is put on the purchase of the automobile, but not the fuel, then consumers, wanting to "get the most for their money", will drive their car on the cheap gas... defeating the entire purpose.

I'm afraid that the crux of the problem is the refusal of the average American to accept this deal:
Mr. Obama will raise our gas prices by about $100 per month, and he will cut our income taxes by $100 per month.

We know this is good for America and Americans, but against that there is pure irrational psychology. Joe the plumber doesn't like Mr. Obama, Joe the plumber "feels" poorer when he has to cough up an extra $20 bill at each fill-up, and Joe the plumber doesn't really notice the extra $100 in his monthly paycheck. It is like an airline charging $10 for a carry on bag while lowering the ticket price by the same amount. People just hate it.

Freaking idiots. Unfortunate democracy. Honestly, I think that deep down, people hate to realize how stupid they were to pay 40, 50, or 60 grand for their gas guzzling 6,000 pound 4x4 Ford Excursion or their 300hp BMW when all they do is commute in traffic or pick up groceries. That extra $20 per week is an undeniable and unwelcome reminder of their foolishness, vanity and consumerism.

Of course, gas is also perhaps the most price-variable "staple" in the average household budget, and demand is relatively inelastic. So dramatic price increases make people feel scared and helpless. Maybe we have to put a reminder on every gas pump that their paychecks are bigger too.

Finally, this really does increase the burden on rural and suburban/exurban communities. But only to the extent that they have been unwisely subsidized in the past. This is the only "real" and rational reason anyone should oppose a gas tax. We can partially ameliorate this pain with better mass transit, but ultimately America will be a better, stronger, wealthier, happier, healthier nation if we get back into denser walkable traditional communities formerly known as "cities" and "towns".

Sadly, our errors are now cemented in cloverleafs and cul-de-sacs. But of all nations, America should be one which is unafraid to see a mistake, identify a solution, and march resolutely towards it obstacles notwithstanding.

I'm afraid that the crux of the problem is the refusal of the average American to accept this deal:
Mr. Obama will raise our gas prices by about $100 per month, and he will cut our income taxes by $100 per month.

We know this is good for America and Americans, but against that there is pure irrational psychology. Joe the plumber doesn't like Mr. Obama, Joe the plumber "feels" poorer when he has to cough up an extra $20 bill at each fill-up, and Joe the plumber doesn't really notice the extra $100 in his monthly paycheck. It is like an airline charging $10 for a carry on bag while lowering the ticket price by the same amount. People just hate it.

Freaking idiots. Unfortunate democracy. Honestly, I think that deep down, people hate to realize how stupid they were to pay 40, 50, or 60 grand for their gas guzzling 6,000 pound 4x4 Ford Excursion or their 300hp BMW when all they do is commute in traffic or pick up groceries. That extra $20 per week is an undeniable and unwelcome reminder of their foolishness, vanity and consumerism.

Of course, gas is also perhaps the most price-variable "staple" in the average household budget, and demand is relatively inelastic. So dramatic price increases make people feel scared and helpless. Maybe we have to put a reminder on every gas pump that their paychecks are bigger too.

Finally, this really does increase the burden on rural and suburban/exurban communities. But only to the extent that they have been unwisely subsidized in the past. This is the only "real" and rational reason anyone should oppose a gas tax. We can partially ameliorate this pain with better mass transit, but ultimately America will be a better, stronger, wealthier, happier, healthier nation if we get back into denser walkable traditional communities formerly known as "cities" and "towns".

Sadly, our errors are now cemented in cloverleafs and cul-de-sacs. But of all nations, America should be one which is unafraid to see a mistake, identify a solution, and march resolutely towards it obstacles notwithstanding.

Several ideas have been promoted for privatizing road construction. Even though private businesses build the roads, the state still owns them. Privatization would make them privately owned. The state would sell the roads to the highest bidder. Some could become toll roads. But it would be trivial for the owners of highways to put traffic monitors on their roads and have gas tax revenue divided among the owners according to traffic. That way, only the roads that are traveled the most would get repaired and no roads would be built to nowhere because there would be no traffic.

What do you mean privatize it? Road construction is already done by private contractors in most states. I thought you are a radical libertarian that thought the government shouldn't organize road construction at all and it should be done by local boards of citizens are something. So I am confused.

SirWellington, privatizing road construction scares the pee out of most people, but I cannot see how we will ever have rational highway planning as long as politicians decide where roads go. For the most part, they build roads to reward loyal contributors.

Eisenhower was the exception. He wanted to be able to use highways to transport troops instead of using trains, which he considered too vulnerable. We have Ike to thank for our mess. Had he not set the pattern for federal subsidies of highway and air traffic, train travel would have been able to compete and we would drive short distances, take a train for medium distances, and fly over long distances. Instead, we drive and fly everywhere while rarely using the more efficient rail.

Now the state wants to save us from the mess it has created by taxing us more!

I'm not sure I agree with privatizing roads completely, but I hold a similar view of the problem. We have too many roads to nowhere that incentivize people to move to nowhere. Too many roads that aren't paid for by the people that live there. Goods should be moved by freight, not on roads. The highway system has gotten out of control.

America would also be less car-dependent if the ham-fisted school integration efforts of the 70s hadn't made the suburbs a vastly more attractive place for people raising kids. Attempts by government to stamp out people's natural tribalism will never succeed, but will almost always result in a less-efficient accomplishment of the same self-segregation.

Payroll taxes are also regressive. Cutting those, returning income-tax to its original status as a tax on the rich, and simultaneously taxing petrol to make up the lost revenue, is a proposal that might fly politically.

How about this? Something costs $100 and is reduced by 20%, then reduced by 20% again. How much does it cost? The percentage of people that will answer $60 instead of $64 is not only astounding, but explains why the framing you propose would not fly.

One could propose reducing FICA taxes in response to a petrol tax, as it would roll back one regressive tax in respone to the increase on another, but we're not exactly at the point where FICA taxes should be reduced.

"These settlement patterns have resulted, in no small part, because petrol prices in America have been so low for so long."

Wrong! These settlement patterns happened because of state intervention in the form of zoning laws. Zoning requires that residential areas be pure and free from industrial, retail or office complexes. That makes it physically impossible to live close to work. At the same time, the state has insisted on paving with concrete every inch of bare space in order to build six, eight and 14 lane highways, many of which are not necessary. The combination of zoning and massive highway spending made it necessary and cheap to live long distances from work and drive there. The state created the problem, not "low" gasoline prices.

And US gas prices are not low. They are the market rate place state and federal taxes. European taxes on gasoline are high relative to US taxes, but US gas prices are not low.

The obvious solution would be to get rid of zoning laws and privatize road building so that it becomes rational instead of political. But that will never happen. So raise taxes on gasoline and what will be the unintended consequences that bad economists like Mankiw never consider? 1) Businesses will have to raise prices in order to pay for higher shipping costs. 2) Commuters who don't have good public transportation options will reduce spending on other things, such as restaurants, clothing, etc., causing hard times for those businesses. 3) People will save less.

I think we should combine a car tax, a miles per driven tax, and a gasoline tax, while investing in public transit and more efficient cars. Public transit for the suburbs is a problem, but a strong network of free buses and taxi service should do until people start to move. Many less developed countries use this sort of public transit. We should also change our building codes and zoning laws to stop sprawl. I even venture we should consider stop subsidizing rural areas, except in ways that are economically useful to us, like farming and logging. If we did all these things, I think we could change gasoline usage without causing economic destortions that would undesirable.
Just 12 easy steps.

That's no good. You're going from a progressive tax to a regressive one. Just try to compromise on it. My first idea would be, this is a new tax worth $x billion. To the liberals, this will reduce consumption of oil and help with climate change. To the conservatives, this tax will only ever be used to pay off the debt.

I agree with Mankiw but have a bit of an issue with the framing. Specifically:

"Even if you believe saving gasoline is a holy cause, subsidizing electric cars simply is not a substitute for politicians finding the courage to jack up gas prices."

I don't think there is anyone that is a serious proponent of saving gasoline that seriously thinks electric cars are the way to go. Most want punitive taxes on gasoline. While there are a few out there (and probably no one who desrves to be called serious) who do probably think this way setting things up so that it sounds like those in favor of reducing gasoline have hare-brained ideas about how to do this is basically a straw man argument. Those serious about environmental polices are already thinking this way and agree with Mankiw.

Of course, Mankiw makes a great point, I just don't think there is anyone around who actually doesn't already agree with him. As the blog says, how to get there is the problem. Costs fall very unevenly with these schemes so thinking of a way to do this is very difficult. We already have a high degree of path dependency in our oil use and switching will be very expensive and gets more so every year.

"The US will reduce your income tax by x%, this will cost $y billion. In return, we will put gasoline tax up by z%, raising $y billion. We do this for energy security, encourage efficiency, reduce the trade gap etc. etc."